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The Monthly Loan Numbers Keep Growing for U.S. P2P Lenders

by Peter Renton on August 1, 2011

Lending Club had another outstanding month in July reaching $20.6 million in new loans, the seventh time in eight months they have reached a record milestone. Prosper continued on their rapid growth curve with $6.0 million in new loans which is their 11th month in a row with positive loan growth.

I really thought this month that the rapid growth seen so far this year might falter. With the July 4th holiday and the fact that a good portion of the country was on vacation I thought we might see a breather in the expansion at both Prosper and Lending Club. It even looked that way up until the last day of the month. But the famous last day surge in new money at Lending Club (from their institutional investors) in July was staggering: $5.7 million in new loans were funded this past Friday, the last day of the month, which amounts to 27.8% of their monthly total. Here is the 18-month chart for Lending Club.

Prosper also had a big last day surge. Almost $900,000 in new loans were funded on the last day of the month which was also a good chunk of their monthly total. Worth-blanket2, their largest institutional investor, continued their rapid influx of funds investing around $1.4 million in new loans last month, bringing their total since starting at Prosper in May to over $3.2 million. Below is the 18-month growth chart at Prosper.

@Dan, It is true that without worth-blanket2 Prosper has been hovering between $4.5 million and $5 million a month since April. I think they need to see some more growth in the next couple of months outside of that one investor who, as you point out, is the sole reason for their recent growth.

Well growth is growth. That argument can be taken for any number of investors, including LC institutional investors to wave off numbers. More money will still attract new borrowers, and attract new lenders. I agree that it would be nicer to see more broad based lending/borrowing, but I don’t think you can make a “if you take out so-and-so” argument to say that Prosper is having fundamental issues.

@Shawn, Lending Club don’t release their numbers for individual investors so we have no idea what percentage one investor might be doing. We do know that their last day bump has grown from around $4 million four months ago to $5.7 million this month.

I publish the monthly numbers with some analysis but I leave it for others to draw their own conclusions. The bottom line is that more borrowers are getting funded every month on both Lending Club and Prosper and have been for some time now.

Even though WB2 invested almost $1.4M of the $6M in loans that funded in July at Prosper, I don’t think it’s a correct assumption that without WB2, funding would have only been $4.6M. My rationale for this is the fact that WB2 almost single handedly funded many loans (some within 3 minutes of them going live). These same loans would probably have funded within the 2 weeks by other investors, who ended up holding on to their cash, or investing it in lower quality notes that may not have reached the 70% threshold. Point is, obviously, WB2 has a huge effect on total loans funded, but, I estimate that even without him, Prosper would have funded over $5M. (IMHO).

@Peter, You may have covered this is previous entry, but what do you estimate Prosper’s monthly new loan activity needs to be at for them to be “break-even”?

@CA-Lender, You bring up a good point that I neglected to cover in this post. Prosper stopped automated plans in early July and this must have caused a downtick in volume. As you say WB2 has caused the funding of many loans in a matter of minutes – I know I have missed out on loans I would have invested in because I didn’t get on board in time.

Without automated plans I know I am missing out on several investment opportunities, similar to other investors I am sure. I have have spoken with Prosper management about this and have told them they need some kind of notification system. In the meantime, I am testing a Python script that another investor has created that simulates automated plans that I may share on the blog at some point if it works well.

Of course I agree that saying that there was no growth at Prosper not counting this or that person, is unfair. But I think it’s pretty clear that they’re having some problems growing their numbers……………..& I think that even they’d probably admit that it’s taking a lot longer than anticipated for them to get to their pre-quiet period numbers. Looks like it’ll be 2012 before that is going to happen.

@Dan, You may well be right. Prosper needs a couple more institutional investors as well as a bunch more individual investors. Also, I am seeing slightly fewer loans on their platform in the last couple of weeks, in the 300-400 range, whereas a month ago they were consistently over 600 loans. The next couple of months will be very interesting.

@CA-Lender/@ChasingBread – the break-even number that was mentioned in my interview with Prosper management back in February was in the $25-$30 million a month range. It could end up being a little more than that if borrower and lender acquisition costs don’t come down.

Although I agree that volume does seem to be down, I think that fact that WB2 funds loans some quickly (3 minutes in a several cases), when you check on “open” loans, many loans that were “active” at 9:00AM and 5:00PM (PST) are no longer there an hour later.

Of course, WB2 doesn’t fully account for the huge drop from 600 down to 300-400.

If you check http://www.lendstats.com, you’ll see that July was a record month for the number of funded loans (post July 2009)—925.

Personally, I don’t agree with Prosper needing another WB2, I’d prefer to see another 100 small investors instead. I’m online when new loans post, and when WB2 is lending, he’s “pushing” out the “small” investors with his $7500 lend.

If Prosper can maintain 10% month over month growth for loan originations, they could be profitable beginning in early 2013, but 10% MoM might be easy when they are origination $6M in loans, and a bit tougher when they get above $10M/ month. This also assumes that WB2 continues investing $1.5M or more monthly (and hopefully none of his investors need to make a large withdrawal).

Realistically, sounds like they probably won’t be profitable until 2014 or later.

@CA-Lender, Good point on the record number of loans originated, I noticed that as well. So even with the reduced number of loans on the platform they were still funding more loans than ever before (post July 2009).

When I saw Prosper needs a couple more WB2’s, I was saying that from their perspective. Personally, I dislike missing out on loans because a large investor has taken a big chunk of them, but from Prosper’s perspective this is a good thing. But in order to not annoy the individual investors (who, let’s face it, still are in the majority) they need some kind of notification system so we don’t get pushed out of loans by the big boys.

@Charlie/@Dan, I think it is safe to say Prosper will need at least one more funding round before they hit break even, but this recent funding round at Lending Club also helps Prosper. I have never seen so much coverage of peer to peer lending across the web as I have in the last couple of days. Hopefully that will translate into more investors and borrowers for both companies. But where Prosper will be in terms of loan volume in 12 or 24 months time is anyone’s guess.

Since I’ve got a listing on Prosper I’ve been paying a ton of attention lately. I’m not sure who WorthBlaket2 is, but I’m hoping its not someone that Prosper is banking on. Most of what I’m seeing them loan to over the last two weeks has stated income less than stated expenses or other huge scary flaws which, regardless of Prosper rating, seems like bad news (maybe they’re just way smarter than me, though, and know how to make that work). It certainly seems like they’re not crowding out much individual investment right now as they’re picking up everything it seems like everybody else is smart enough to stay away from. I’ve seen several fundings where they’ve funded about 60% the day of the listing and it still hasn’t closed fully funded.

If anything, I’d fear WB2 might be doing harm to Prosper, as listings that have no business being funded get funded and not surprisingly default, making the Prosper protfolio performance appear much worse than it otherwise would have.

Also, have the cash back specials lasted this long in the past? It certainly seems to be accelerating funding (at least to partial funding levels), which was awesome for me. However, it seems like they’re almost writing off this month. I can’t imagine they’re making much after handing back 2.75% for each listing.

Although, as KenL pointed out, the notes that WB2 has been funding lately (last 30 days) seem to be higher quality then the notes he invested in during his first 30 days on Prosper. As for the amount he’s investing, after kicking up his investment “per note” up to $7500 in July, I actually saw one note that he invested $11,600 ($15,000 note).

Anyone have any thoughts on what the upside or downside would be if Prosper limited the amount/percentage an individual can fund a single note, for example, no more then 50% from one investor. Obviously, this isn’t something that Prosper is going to do right now, but if in a year they see a higher then normal default rate from notes that WB2 is in, causing the overall ROI to drop, this option might be an idea which would limit the number of sub-par notes that fund, while causing huge lenders (ie WB2) to diversify more.

@Mike/@CA-Lender, I have also noticed Worth-Blanket2 on some recent loans up over 90% of the loan. They invested $3,700 on a $4,000 HR loan and $11,600 on a $13,000 loan. But while this may be bad for individual investors like us I don’t see it as bad for Prosper necessarily.

Keep in mind that both Prosper and Lending Club want every loan they approve on the platform to fund (assuming they pass verification). They really want to be making the underwriting decisions and not the investors. Having said that it will be curious to see how WB2’s ROI is maintained. I think it is important to Prosper that WB2 has a solid ROI that is at least average, so greater than 10%.

@CA-Lender, As to your suggestion of limiting a percentage from one investor I don’t think it is going to happen. It may protect investors and make the playing field more open to individual investors but the downside, for Prosper at least, is that fewer loans would fund. I could see them putting some restrictions on new investors or on a percentage of a portfolio in one note (for example, no more than 10% of your p2p loan portfolio in any one note) but for large investors a blanket 50% limit could make investing more difficult.